‘Black Wednesday’ 16 September 1992: The economic crisis that shattered Tory credibility

John Major, British Conservative politician and former Prime Minister of the United Kingdom, in 1992

On 9 April 1992, the Conservative Party won a general election with a record-breaking 14 million votes. On 2 May 1997, it lost the next general election, with its standing shattered by the events that were dubbed ‘Black Wednesday’ by the media.

On that day, 16 September 1992, the government announced increases in interest rates; first from 10% to 12% and then to 15% in an attempt to maintain the value of the pound within the Exchange Rate Mechanism (ERM) of the European Union. If implemented, these measures would have turned a persistent recession into a devastating depression.

As the day wore on, millions of mortgage holders contemplated ruin as they faced ballooning repayments. Even though the rises were not implemented, and the government was forced to abandon the ERM, the damage was done, and the Tories’ electoral support slumped, its reputation for economic competence shredded, pulped and flushed down the toilet.

Deeply divided Tories

Although it was the mass revolt against the poll tax which delivered the fatal wound to the leadership of Margaret Thatcher in 1990, the Conservative party was already deeply divided in the late 80s. The divide centred on the EU.

John Major, Thatcher’s successor, represented the majority of the establishment which saw British capitalism served best by ‘ever closer union’ with the EU.

They thought it would give them a place in the world as part of a powerful trading bloc, under a set of rules which enshrined neoliberalism as the unbreakable framework for a European entity: frictionless borders for capital, goods and labour; strict limits on government deficits and intervention in the economy; pressures to privatise public services and state enterprises; and, ultimately, a single currency – ‘Economic and Monetary Union’ (EMU).

EMU also had the support of the then Neil Kinnock-led Labour Party, the Bank of England and the main employers’ bodies.

Fixing the value

Although she had advocated the UK’s membership of the EU, Thatcher came to be the figurehead for a ragbag collection of anti-EU elements within her party.

With her out of the way, the pro-EU wing of the Tories was in control, and they were determined to keep the pound within a narrow range of the EU’s dominant currency, the German Deutschmark, in preparation for entry into a new European currency.

There were two main ways that the government tried to fix the value of Sterling – both involved playing with supply and demand.

Firstly, they bought and sold sterling on the foreign exchange markets; secondly, they made the currency more or less attractive by raising or lowering interest rates through their control of the Bank of England.


By 1992, two years into a recession, the Deutschmark’s value was riding high and the pound was overvalued, supported both by high-interest rates and the buying of sterling. For the sharks of the international money markets, this was the equivalent of blood in the water.

If you are a soulless predator with good lines of credit, capitalism is a beautiful system. You can make money by buying low and selling high. But if you’re rich enough to get a seat in the game, you can also do the opposite – kind of.

‘Short selling’ involves borrowing something that is at a high price and selling it, in the hope that the price will go down and you can use the proceeds to buy the stuff back in time to return it to its owner, leaving a little (or a lot) left over to put on your pile. Of course, if the price goes up you still have to buy the stuff back and return it, and you lose your shorts.

Seeing that the UK government was committed to buying its own currency at an inflated price, the big players in the money markets began shorting the pound on a scale so vast that, on 16 September the Bank of England was effectively unable to buy all the currency that was being offered for sale.

By the end of the day, the government was forced to let Sterling fall, and the sharks got to pocket much of the public money the government had spent trying to hold the line.

The most famous of the sharks, George Soros, made over £1 billion by shorting the pound – £2.3 billion at today’s prices. Not bad for a day’s work.


Even though today sterling is not in a monetary union, the lesson of 1992 is that within capitalism, a government isn’t totally free to determine the value of its own currency or the prevailing rates of interest.

With inflation now in double figures, the economy entering a recession, and the pound at historically weak levels, today’s options for the British government are all bad.

In theory, if Sterling is weak, UK goods are cheaper on the world market, leading to higher sales, more investment etc. In reality, a weak currency means pricier imported goods and UK exporters jacking up prices to take a quick profit. The dominant finance sector prefers a strong, or at least stable, currency.


The Truss government’s plan to borrow £150 billion to subsidise energy prices is based on wishful thinking. In Trussworld, rates will not rise as a result of her actions, and the currency will continue to be strong and stable.

According to the Financial Times, that is questionable. Will the markets buy £150 billion of dodgy debt? Will interest rate rises sink the economy? Get ready for ‘Told you so Tuesday’ or ‘Fuckup Friday’. Labour may benefit from a Tory shipwreck, but its policy is to leave us in the water with the sharks. Only a socialist programme can meet the challenges of our times – by renationalising the energy sector, along with the big financial institutions, and the ‘commanding heights’ of the economy, to start planning our economy to meet the needs of the people rather than the predatory drives of the market makers.

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September 2022